In Motorola Mobility, Motorola sued Asian members of an alleged price-fixing cartel that produced LCD panels incorporated into Motorola phones that were mostly manufactured in China. Motorola and its subsidiaries purchased $5 billion of panels, only 1% of which was directly imported into the U.S. by Motorola. Forty two per cent were purchased by Motorola foreign subsidiaries that manufactured the phones in China and then imported them into the U.S. The remaining 57% never made it to the U.S. The Seventh Circuit Court of Appeals found that alleged component price fixing injuries suffered by Motorola’s foreign subsidiaries at the hands of the alleged cartel were derivative and, thus, too indirect to give rise to a claim under the U.S. Sherman Act. Critical to the Seventh Circuit’s analysis was the fact that the alleged price fixers were not selling the panels in the U.S., but were selling them abroad to Motorola’s foreign subsidiaries to be incorporated into phones that would later be sold in the U.S. at prices established by Motorola.

On July 1, the Seventh Circuit granted a rehearing for Motorola Mobility after the U.S. filed an amicus brief at the court’s request. The government’s brief argued against the Seventh Circuit’s analysis in the original Motorola decision, suggesting that there can be a causal connection between fixing the price of a major component made and sold outside the U.S. and U.S. commerce in finished products incorporating that component, and that Motorola should be allowed to establish the necessary link between its injuries and the price fixing conspiracy’s effect on U.S. commerce in phones.

In contrast to the almost bright-line reasoning by the Seventh Circuit in Motorola, the Second Circuit in Lotes applied a more flexible, fact-specific analysis to determine the applicability of the Sherman Act. Lotes sued co-members of an international standard-setting organization developing the next generation of USB connectors to be incorporated into computers as a result of their refusal to provide Lotes with a license as part of the organization’s rules. One competitor sued Lotes for patent infringement in China. Lotes claimed that its exclusion from the market would raise USB prices worldwide, including in the U.S., and cause it to lose profits.

The Second Circuit suggested a fact-intensive inquiry into the reasonably proximate causal nexus between the foreign conduct and the effect on U.S. domestic or import commerce, examining market structure and the commercial relationships at each link in the causal chain. The court found that anticompetitive injuries can be transmitted through multi-layered supply chains, and that there is nothing inherent in the nature of international supply chains that renders foreign conduct with domestic effects impermissibly remote and indirect. The Second Circuit ultimately found that Lotes’ claims did not give rise to a Sherman Act claim because its alleged injuries took place overseas. Thus the domestic effect did not cause Lotes’ injury, which was independently caused foreign injury which preceded any domestic effect in the causal chain. Nevertheless, the decision is a marked contrast from Motorola in that it did not rule out the applicability of the Sherman Act to foreign conduct affecting a multi-layered, global supply chain.

Although it is uncertain how the Seventh Circuit will rule on rehearing, or whether any split in the Motorola and Lotes decisions will ultimately be decided by the U.S. Supreme Court, the differing analysis in both cases suggest that companies who have been injured by foreign conduct affecting their global supply chain will want to take care to plead injuries with stronger and more direct ties to U.S. domestic and import commerce.

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